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With a Deal in Hand, Teva Stock Can Chart a Difficult Comeback

Josh Enomoto

With the raging opioid crisis that has killed tens of thousands of Americans and injured millions more, it’s understandable that state and local governments were not amused with big pharmaceuticals. Case in point is Teva Pharmaceutical (NYSE:TEVA). Over the past five years, Teva stock went from trading in high double digits down to single-digit territory.

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Granted, not everything involved opioids. A good portion of the damage done to Teva stock came from its ill-timed acquisition of Allergan’s (NYSE:AGN) generic drugs business in 2016. Since then, the profit margins for generic drugs have fallen precipitously.

This of course impacts Teva stock substantially. The underlying company is the world’s biggest generic drug maker.

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Typically, of course, Teva specializes in generics for high-priced medication that address severe symptoms or diseases. In other words, the company bridges the gap between a patient’s ability to pay versus the help they need.

However, the pharma company made the mistake of duplicating popular opioids. As a result, it fell under litigatory fire from multiple government bodies. In order to stop the bleeding in Teva stock, management secured a last-minute deal to settle all opioid-related lawsuits.

Based on the deal’s terms, Teva will donate $23 billion in opioid addiction treatment drugs — a generic of the Suboxone drug — and pay $250 million over 10 years. Naturally, the favorable agreement raised many eyebrows.

Because the company is donating its generics, the basis of the $23 billion figure is suspect. By “inflating” the number via using the drug’s list price —  which doesn’t account for commonly given discounts — the deal appears more favorable than it is.

Still, despite the optics, this is a necessary move for the generics industry.

Teva Rides a Blurry Line between Vindicator and Villain

Although pharmaceuticals have strong long-term potential, I’m not the biggest fan of their products. Unless I’m having a health crisis, I prefer not to put anything unnatural in my body. And I’m especially not a fan when big pharma gets it wrong, like it did with the opioid crisis.

While some people may want to see TEVA stock collapse entirely as poetic justice, I believe the settlement is fair. After all, the drug maker makes identical copies of branded (and comparatively expensive) medication. From my understanding, the company did not start the fire, but rather facilitated it.

Whether Teva did so knowingly is up for debate. For what it’s worth, the last-minute deal doesn’t come with an admission of guilt.

Granted, observers have a right to be skeptical. Nevertheless, I think we should consider Teva stock as a whole and not just in terms of the opioid crisis. Because here’s where it gets blurry: Generics are lifesavers.

I’m not making this comment to share an anecdotal tale. Just last year, the U.S. Food and Drug Administration approved a generic version of EpiPen. Designed to stop dangerous allergic reactions, EpiPen developer Mylan (NASDAQ:MYL) infamously raised the treatment’s price by over 500%. The price hike was especially egregious because it negatively impacted children.

Guess who provided the EpiPen generic? Teva.

But does one right overturn a wrong? No, but that’s not my point. Rather, generics serve a vital purpose in our complex and bloated healthcare system. According to the Association for Accessible Medicines, generics generated $265 billion in savings in 2017.

With healthcare taking an increasingly larger chunk out of our wallets, the generic industry is simply irreplaceable.


How to Approach Teva Stock

There is absolutely no doubt that Teva stock is a speculative trade at this point. Beyond the opioid drama that has clouded pharmaceuticals, the company ballooned its debt while incurring declining revenue. That’s not exactly the recipe for success.

However, some good news has also appeared. Primarily, this came in the form of a contextually solid earnings beat. Although TEVA fell a bit short on per-share profitability, it beat revenue expectations. It’s a small win on paper, but it confirms that the pharma is on the right track.

Plus, as CBS News reported, drug prices have soared this year. Despite President Donald Trump’s vow to rein in costs, healthcare remains a blight to the American people. It has caused some to skip out on expensive prescriptions or cross the border into Mexico for their medication.

And while Democrats are well meaning with their proposal for free healthcare for all, let’s face it: Money doesn’t grow on trees. Thus, we may get our free healthcare but somehow, someway, we’ll pay for it somewhere.

And then we have Teva Pharmaceutical. Like a controversial comedian, it’s vulnerable to a misfire. But with such vital need for reasonably priced medication, I don’t think the perma-bear perspective makes sense.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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